When I first started in the mortgage business, at least one in four of all of my buyers got an FHA Cash Advance and Payday Loans in St Charles, MD. The rates were fantastic, the down payment requirements minimal, and the credit requirements were close to meaningless. Most first – time home buyers got an FHA loan.
In the last three years, over 600 families have trusted me with their home loan needs. Of those 600, I did a total of two FHA loans over that time. One in 300.
I wasn’t alone. FHA guaranteed less than 5,000 loans in California last year. In 2003, they did over 100,000. A 95% decrease in demand. Nationally, FHA loans are down 50% from a few years ago.
FHA loans lost their popularity in the past few years for numerous reasons. Loan limits were too low for the fast-appreciating real estate market, income documentation guidelines were too strict, and appraisal restrictions were very difficult.
Subprime lenders, with looser guidelines, capitalized and met this demand.
Home values increased more than FHA lending limits did. The average home in Las Vegas was around $300,000. The FHA loan limit was around $270,000. Subprime lenders would go over $1 million.
FHA requires full documentation of your income and a 3% down payment. Subprime lenders were doing 100% loans with stated income with scores as low as 600.
Although sometimes flexible, FHA guidelines limit your debt-to-income ratio to 41%. Many subprime banks were letting borrowers go to 55%.
With rising sale prices, more borrowers went with stated income loans. FHA wouldn’t allow this. Subprime did.
The FHA appraisal requirements were much more strict and this also turned off many sellers. Subprime lenders had no additional requirements.
The FHA loan was, quite frankly, a last resort. Subprime had taken its place.
Today, that has changed. With all of the recent guideline changes, the subprime loan is nearly dead with anything less than 5-20% down. Many subprime banks have gone out of business. Many more will.
FHA is back!! Once again, borrowers are looking at this as a primary option, especially first time homebuyers.
There are two types of mortgage loans; government loans like FHA and VA, and then there are the rest, which are called conventional loans.
100% financing on conventional loans is not as readily available as it was, particularly for those with marginal credit. FHA has not changed. 97% financing was and is available regardless of credit score. In the last three months, I have closed five FHA loans.
FHA recognized their business was getting hurt by increasing home values so they dramatically increased their loan limits.
In Las Vegas today, the FHA loan limit is $304,000. This is right in line with our average sales price. The timing could not be better and, as a result, FHA loans are back as a very viable loan option.